Daily Progress, Jacksonville, TX

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December 13, 2012

LMC: Loss of Title IV funding automatic with college bankruptcy proceedings

"If you declare bankruptcy you are out of the program forever."

JACKSONVILLE —

In August, the U.S. Department of Education revoked Lon Morris College's Title IV status, permanently stripping LMC's access to Higher Education Act funding — including federal Pell grants, teacher education assistance, SMART grants, work study and federal student loans.

LMC was faced with the permanent loss of help that has become invaluable — crucial even — to itself and many educational institutions around the country. Having already started bankruptcy proceedings, the Lon Morris College estate closed the college's doors.

The funding loss was devastating — especially to the many who had hoped LMC would recover from its financial problems and regain its status as a place of education.

But could the funding loss have been avoided?

Accounts in LMC's proposed liquidation plan filed in federal bankruptcy court indicate Chief Restructuring Officer Dawn Ragan was under the impression she could both declare bankruptcy AND keep the college's Title IV status. Ragan has not returned multiple messages for comment.

The plan also indicates Ragan started entertaining the idea of bankruptcy almost as soon as she was hired as CRO — months before the U.S. Department of Education felt it necessary to intervene.

Additionally, the CRO seemed to disbelieve the legal precedent cited in the letter from Mary Grant, director of the DOE's administrative actions and appeals service group.

Grant's letter to LMC cited specific law: "Section 102 (a) of the HEA (Higher Education Act) specifically provides that an institution that has filed for bankruptcy is not an eligible institution for purposes of participating in financial assistance programs authorized by Title IV or the HEA."

An education expert said it's well-known that Title IV revocation is automatic when bankruptcy is declared by an institution such as Lon Morris.

"The law is awfully clear — if you declare bankruptcy, you are out of the Title IV program," said Dennis M. Cariello of New York City. "Bankruptcy simply is not an option if you hope to continue operating as a school."

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